New Delhi (India), August 4: M1xchange, India’s first and leading TReDS platform, in partnership with YES BANK and RBL Bank, announced today that it had started testing of ‘Small-Small Factoring’ product under the Reserve Bank of India’s (RBI’s) third cohort of the regulatory sandbox. This product is intended to enable early liquidity to Micro, Small & Medium Enterprises (MSMEs) buyers and sellers and offers a world-class customer experience to MSMEs supported by a convenient and end-to-end digital process. After successful testing under sandbox, a full-scale roll-out of this product is expected to offer a highly effective and efficient solution for over USD 750 Billion credit gap for MSMEs in India.
This product is one of the eight propositions approved after a detailed evaluation of 22 applications by the RBI. The testing under sandbox is expected to be complete by September 2022.
One of the key features of this product is the digital credit assessment engine that enables a 360-degree view of the credit profile of the MSME buyer using a cash flow-based credit model. This model analyzes authentic, non-repudiable data from multiple digital sources to generate rich insights around MSMEs credit profiles and hence alleviates traditional concerns around the authenticity of MSMEs business financials, a key data source in traditional balance sheets based credit assessment model.
In the TReDS model, most buyers are large, well-rated corporates with a turnover greater than INR 500 Crore and a long-term credit rating better than A-. However, financiers lack credit appetite for MSME buyers, who lack the balance sheet strength associated with a large corporate buyer. Hence, this product will leverage technology, product development, data and risk analytics capabilities to enable cash flow-based credit analytics of MSME buyers instead of the traditional balance sheet-based risk assessment approach.
Mr. Sundeep Mohindru, CEO, M1xchange said, “In the current inflationary market, where the cost of RM has gone up multifold, and stocks have to be purchased in advance to manage the Supply chains disruption, MSMEs need for working capital (WC) is very high. The traditional OD / CC limits sanctioned based on MSME financials and the collateral they offer will fall short of WC needs. The cost of funding outside the banking system is very high for MSMEs.With this unique proposition developed by M1xchange TReDS, MSME enterprises can utilise TReDS for receivables discounting from their MSME Buyers. MSME buyers, in turn, will be able to procure at better prices and manage their inventory adequately.”
Speaking on occasion, Mr. Ajay Rajan, Country Head – Transaction Banking, YES BANK, said, “Cashflow based Supply Chain Financing is fast evolving as the more preferred financing option for MSMEs to meet their working capital requirements. We at YES BANK are delighted to further our strategic partnership with TReDS platforms and participate with M1xchange in the RBI’s regulatory sandbox environment. This unique approach to digitally harnessing data and risk analytics — which could help replace traditional balance sheet-based risk assessment model with cashflow based credit analytics — can potentially be a game-changer to provide better and quicker credit access to MSMEs while also helping the Bank augment its positioning as the preferred ‘Digital Partner’ for MSMEs.”
“We are excited to partner with M1xchange on this innovative platform benefiting the small enterprises. The liquidity needs of the Indian MSME sector have increased; implementation of this sandbox will help achieve greater efficiency and enable the MSMEs to gain access to lower interest rates and collateral-free credits”, said Mr. Rajiv Janjanam, Head – Retail Products & Digital, RBL Bank.
YES BANK is a ‘Full-Service Commercial ‘Bank’ providing a complete range of products, services and technology-driven digital offerings, catering to Retail, MSME as well as corporate clients. YES BANK operates its Investment banking, Merchant banking & Brokerage businesses through YES SECURITIES, a wholly owned subsidiary of the Bank. Headquartered in Mumbai, it has a pan-India presence, including an IBU at GIFT City and a Representative Office in Abu Dhabi.
For more information, please visit the Bank’s website at http://www.yesbank.in/
RBL Bank is one of India’s leading private sector banks with an expanding presence across the country. The Bank offers specialized services under five business verticals: Corporate & Institutional Banking, Commercial Banking, Branch & Business Banking, Retail Assets and Treasury and Financial Markets Operations. It currently services over 11.30 million customers through a network of 502 branches, 1,302 business correspondent branches (of which 289 banking outlets), and 417 ATMs spread across 28 Indian states and Union Territories.
For more information, please visit the Bank’s website at https://www.rblbank.com/
M1xchange TReDS is a digital marketplace to sell the receivables to banks/NBFCs set up under the approval of the Reserve Bank of India (RBI) to facilitate the discounting of invoices and bills of exchange on a PAN India basis. Key participants in TReDS are Micro, Small & Medium Enterprises “MSME” (Suppliers), large Corporates including PSUs and Govt. Departments (Buyers) and Banks/NBFCs (Financiers). M1xchange aims to provide MSMEs Supply chain-related cash flow finance at competitive rates through an open bid process via multiple financiers. Financing on M1xchange is “Without Recourse” to the MSME supplier as per RBI guidelines. M1xchange employs the latest technologies to ensure the authenticity of the underlying transactions.
For more information, please login www.m1xchange.com
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Divya Agarwal
